US Dollar gets altitude sickness as BOJ disappoints

Frankfurt (Dec 18) The dollar sank as much as half a percent against a basket of major currencies on Friday, hurt by a resurgence of the yen after the Bank of Japan opted for tweaks rather than an outright expansion of its monthly asset purchase target.

The dollar's move, after the Federal Reserve raised interest rates for the first time in almost a decade on Wednesday, reflected concerns of the impact of a stronger U.S. currency on both the United States and a raft of emerging economies.

A poor reading of Thursday's Philly Fed survey in the United States was the latest evidence of how much U.S. companies have already been squeezed by a 23 percent appreciation since the middle of 2014.

"(That was) another 'Rate hikes? Really?' message from the part of the US economy still trying to actually make things," said Michael Avery, Rabobank's Head of Financial Markets Research for Asia-Pacific.

"Given that the U.S. dollar index jumped from 98.4 to 99.0 on the day, we should expect more of that to come."

The dollar fell 1 percent to 121.26 yen on the back of the Bank of Japan's announcements, but recovered to trade a touch higher against the euro at $1.0827.

Dealers and analysts in London stressed Friday's moves had tended to happen in relatively low liquidity and looked chiefly like a minimal retracement of the dollar's more than 1 percent gain after the Fed's decision on Wednesday.

"We had a big move higher and today we're coming back a bit," said Lee Hardman, a strategist with Bank of Tokyo-Mitsubishi UFJ in London.

Onshore rates for China's yuan fell for a 10th consecutive day but the offshore market in which most international players now trade was steadier as London came online, having hit its weakest since a one-off devaluation of the currency in August.

"Everyone is just waiting to see whether this steady depreciation will be allowed to continue," BTM's Hardman said.

"There's always the risk with volumes lower at the end of the year that the PBoC might come into the market and try and flush out some of the speculative money."